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Key performance indicators

 

Performance management and KPIs

Performance Management is the process used to improve employee performance in order to ensure the company achieves its targets and that employee work supports the organisation’s goals.

The core purpose is to review how well an employee is applying his or her current skills and to what extent he or she is achieving the outcomes desired?

One of the main ways you can evaluate this is to look for hard data to determine how well an employee has performed his or her duties. However, it is also important to make sure the employee is not just working hard but working on the right thing. A team member may be very hard working and dedicated but if they are not concentrating their work in the right areas then there is little benefit for the organisation.

This is where key performance indicators come into play and they apply both at organisational and individual levels. At an organisational level, a KPI reflects how well an organisation is achieving its stated goals and objectives.

For example, if your vision includes providing superior customer service, then a KPI may target the number of customer support requests that remain unresolved by the end of a week. By monitoring this, you can directly measure how well your organisation is meeting its long-term goal of providing outstanding customer service.

If your KPI is inappropriate this is not going to enhance productivity. For example, using the same goal of providing superior customer service, the first KPI that often comes to mind is the number of customer complaints received. This may indicate high levels of customer service, however it could be because you have fewer customers, or because customers are not able to access your support services.

While it is important for organisations to choose the correct KPIs for business performance, it is equally useful if managers and employees define KPIs for members of their teams. If KPIs cascade from level to level, it helps people work in such a way that their activities are aligned with corporate strategy.

Employee KPIs

Setting performance management goals with members of your team may be done within the formal appraisal process, but the important factor is that the goals that are set are aligned with the department's strategy, which in turn is aligned with the overall strategy of the organisation.

If you set a goal around a certain outcome, the chances of that outcome occurring are much higher, simply because you have committed to managing and measuring the results.

When an employee's goal is defined in terms of an organisational KPI, it ensures that what the employee is doing is well aligned with the goals of the organisation. This is the critical link between employee performance and organisational success.

Use the following questions to help you work towards defining effective KPIs:

Defining the context

  • What is the vision for the future?
  • What is the strategy? How will the strategic vision be accomplished?
  • What are the organisation's objectives? What needs to be done to keep moving in the strategic direction?

Defining KPIs

  • Which metrics will indicate that you are successfully pursuing your vision and strategy?
  • How many metrics should you have?
  • How often should you measure?
  • Who is accountable for the metric?
  • How complex should the metric be?
  • What should you use as a benchmark?
  • How do you ensure the metrics reflect strategic drivers for organizational success?
  • How could the metrics be cheated, and how will you guard against this happening?

 

KPIs and rewards, recognition and development

Once you are satisfied that you have meaningful metrics for measuring organisational or employee performance, you must ensure the supporting elements of employee performance are aligned as well.

For example, if your organisation wants to attract new customers, then you might have a KPI that measures how many new customers are attracted each week. Depending on the situation, a well-aligned performance system may reward employees based on the number of new customers they personally help to attract.

By applying the principle of KPIs to employee goals and performance, you create a direct link between all of the key success factors that have been derived from the overall strategy. The result is that members of your team actually do what they should be doing, and that your measurements for determining how well they are doing are clearly tied to organisational success.